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Hi everybody,

Anyone interested in Williams % R ?. It is an oscillator like Stochastic. I was initiated to this by Price Headley of Bigtrends.com. (He is an efficient technicals trader and a great educator.)

More on Williams % R. It helps to identify safe entry points, to buy on declines, while many momentum indicators suggest buying on a breakout. Moreover, we can use this to stay with a trade as long as stop loss is not hit. Let me explain briefly :

Setup bar - The day when a stock breaks above -20% level on Williams % R

Initial breakout bar - It should appear within 5 sessions of the setup bar and is identified by a close above the high of the setupbar, assuming we are trading on the long side.

Retest bar - This is our entry point an appears anytime after the initial break out bar, when Williams % R line crosses below -20% level

Stoploss - This is placed at the low of the retest bar and trailed up as the trade progresses, at the low of the next bar, when Williams % R crosses below the -20% level and so on.

My own experience suggests we can filter trades entered as per the above method by avoiding those where more than 1 of the indicators mentioned below show a sell signal :

a. Bollinger band reversal

b. A close below the 20 day moving average

c. Any of the bearish candle patterns, i.e, Bearish engulfing, Bearish Harami, Hanging Man, Shooting star, Evening star, Dark cloud cover, etc

d. Close below the trendline

e. Close below RSI trend line

f. 14day Rsi below neutrality level of 50%

g. Stochastic at oversold levels below 20%

Anyone interested please comment.

Suresh

hi suresh,

very nice & informative writeup.

i (& others too) look forward to many more such informative articles from u.

thnx man !

maxx at 01:49PM on Dec 05, 2009

hi suresh,

very nice & informative writeup.

i (& others too) look forward to many more such informative articles from u.

thnx man !

Hi Max,

I am glad you liked it. This encourages me to delve a little bit deeper and provide an illustration. By the way, my settings for Williams % R is 30 period as against the default setting of 15 in Amibroker.

Now, I will explain a trade which I am presently long on. It is Cipla. The details are :

Set up bar made on 20-11-2009,

Initial break out bar on 21-11-2009, now we wait for the retest bar

There it comes on 26-11-2009, with a stop loss below Rs 313.60 on closing basis.  But please note there is a Bollinger band reversal on that date. Hence we wait patiently on the sidelines. As the days go by we see that the stop loss is not hit and there is another retest on 30-11-09. This time, we find no sell signal (remember my criteria for sell signals as detailed in my previous post.)

Hence, we enter the trade now on 1-12-2009 with a stop loss below Rs 319.15 on a closing basis. Now  we need an entry price. I use fibonacci retracement levels of 38.2%, 61.8% and 100% and its expansions, for the  downswing from Rs 331.90 to Rs 312.10 and subsequent upswing from Rs 312.10 to Rs 327.30

Accoringly, We get the following levels before trade opens on 1-12-2009  :  307, 313, 319, 321, 323, 325.  (I have provided a cushion of Re. 1 to each fib level to account for rounding off ). Market opens on 1-12-2009 and Cipla is weak at Rs 315.10, which also happens to be the days low. Some news comes and the stock  zooms, but I have entered at Rs 319, our 3rd Fib level as above and by friday evening, i.e, 4-12-2009, I am sitting on a 12.5% profit in just 4 days.

Now, we need an exit  strategy. Price Headely feels we should hold untill further retest bars happen and until a stop loss is hit. It may take us a long way up. However,  considering indian market conditions, where emotions hold a greater sway than in Usa, I would like to be conservative. My plan is to book profit if  at least TWO of  the sell signals I listed out yesterday happens in tandem on any particular day.

I have tried to be brief lest it becomes boring. But if somebody feels difficulty in following, I will elaborate.

Dear Suresh....an excellent job....

dont feel worried abt the post getting boring as pple who are new will find it easy to follow and pple who are technically sound will skip it anyway...coz they wud know what u r saying.

Keep up the good work